Monday, February 15, 2010

Federal Budget Deficit Rhetoric Sounds Fishy

This blog entry was published by MinnPost on February 15, 2010.Click here to visit the original article. 

Last week, the sign outside a local church announced that Sunday's sermon would be, "Sounds Fishy?" The preacher might have had in mind the latest rhetoric on the federal budget deficit. Everyone rants against the federal budget deficit and our outstanding national debt, but few national leaders have demonstrated that they have or will cut the programs or raise the taxes necessary to balance the federal budget.
The federal budget deficit has risen to relative levels not seen since the Second World War. For 2011, President Obama has proposed expenditures greater than revenues of $1.3 trillion dollars or 11% of Gross Domestic Product (GDP). A large federal budget deficit is bad because the nation has to borrow money to finance the deficit, which crowds out more productive borrowing by the private sector and leads to higher interest rates. Some of the buyers of federal debt are foreign nations raising questions about the financial security of our nation. Since the last budget surplus in 2001, the federal government has taken in less revenue than it has expended each year. The second president Bush, who claimed he wanted to lower the budget deficit, instead reduced taxes and increased expenditures. The expenditures were used to fight the wars in Afghanistan and Iraq and to increase drug benefits for senior citizens, which increased the deficit dramatically.
Beginning in 2008, federal revenues fell because of the "great recession" and expenditures were increased to bail out the banks and stimulate the national economy. By the end of Bush's last term, the federal budget deficit was projected to be 10% of GDP. We now have Republican and Democratic politicians demanding that the federal budget deficit be lowered. The calls for reductions are easy to make, but which program do they recommend be eliminated and/or which tax do they recommend be increased? For example, Sen. Sessions (R - Alabama) has been critical of President Obama on the federal budget deficit but he doesn't want the space program important to his state cut as the president proposed. Sen. Lincoln (D - Arkansas) also wants the deficit lowered, but doesn't want farm subsidies cut as the president proposed. Others have criticized the federal budget deficit but then turn around and argue that federal taxes should be cut, which would increase the deficit.
In Minnesota, we have our own example of "sounds fishy." Recently on a nationally televised Fox News program, Gov. Pawlenty criticized the federal budget deficit as a ponzi scheme." Does Gov. Pawlenty, who has national interests, have the state record to criticize Obama and Congress on budget deficits?
Here are the facts on Pawlenty and state budget deficits in Minnesota during his two terms:
• A recent national study by the National Conference of State Legislatures found that Minnesota at 41% of the budget was second only to Alaska of all the states in using one-time fixes (better know as accounting gimmicks) to balance the state budget last year. Because of those accounting gimmicks, the Pawlenty administration will "borrow" from local school districts and the state's colleges and universities because the state is running out of cash;
• Gov. Pawlenty proposed borrowing $900 million from future tobacco law suit settlement payments to balance the operating budget, which would hurt future generations; and,
• In 2012-13, when the next governor takes office, the state faces a projected budget deficit of at least $5.4 billion because Gov. Pawlenty failed to solve in real ways the current budget deficit.
Resolving the federal budget deficit is difficult, inglorious work, particularly when our leaders are using rhetoric that misleads people from the stark facts. Our nation must undertake real spending reductions (some of which will impact us) and real tax increases (some of which each of us will have to pay) if we are to reduce and eliminate our federal budget deficit. Hopefully, Gov. Pawlenty will make the hard choices necessary this legislative session to both balance ongoing state revenues with ongoing state expenditures for this biennial budget and leave a balanced budget for his successor for the next biennial budget. If he does, he will demonstrate that he is prepared to take on the federal budget deficit and distinguish himself from other national leaders.
Posted February 15, 2010